Environmental Conditions, Reservation Prices, and Time on the Market for Housing

A general analytical model to describe the impact of environmental disamenities on duration of sales is derived. A statistical technique to recover a seller's reservation price is proposed. An econometric procedure that consistently estimates market duration and a seller's reservation price is described. An application to the impact of highway noise on property values and market duration is presented. The estimation results show that, while highway noise has a significant negative impact on forming reservation prices and predicting sale prices, the noise effect on duration of sales is not statistically significant. Empirical evidence also shows a negative impact of market duration on reservation prices, which indicates an updating process for reservation prices over time.